Employers have been buying workers' compensation insurance policies with ever higher deductibles as carriers continue to raise prices and fatten their profit margins, a new study has found.
The findings were released today by the Washington-based National Academy of Social Insurance.
According to the group's study, employer costs in 2004 rose by 7 percent to $87.4 billion while total workers' comp benefit payments for injured workers rose by 2.3 percent to $56 billion.
The figures for 2004 (the most recent year for which data is available) continued a trend that began after 2000, when workers' comp insurance costs and benefits relative to wages were at their lowest point in the last 15 years, the Academy said.
Ishita Sengupta, the NASI researcher who wrote the report, said that although she had no data yet, she guessed the numbers for 2005 would show the "same trend of more large deductible policies."
In 2004 deductibles totaled $8.2 billion, which was 14.6 percent of total benefits paid compared with 2003 when deductibles totaled 14.8 percent or $8 billion. John F. Burton Jr. of Rutgers University, who chairs the panel that oversees the report, noted in a statement that employer comp costs declined in the 1990′s as worker benefits dropped and insurers buoyed by investment returns cut premiums to gain market share.
Since 2000, however, low interest rates and poor stock market returns have "led insurers to raise premiums in order to cover future benefit costs," he said. Rising premiums to cover future costs, "appears to be part of a longer cycle of ups and downs in the insurance market," noted Mr. Burton.
In an interview, he said, he found it notable that "over the last five years the increase in benefits is due almost entirely to medical [treatment costs]." That information, he said is not new but reinforces the trend of the highest percentage of comp benefits going to pay for injury treatment, rather than cash paid to workers during time off the job in recuperation.
Since 2000, NASI found spending for medical treatment grew from 47 cents per $100 of wages in 2000 to 53 cents per $100 in 2004. Spending for cash payments to workers relative to wages was the same in 2004 as in 2000–60 cents per $100 of wages. Relative to wages of covered workers, the Academy found that benefit payments fell by 3 cents for every $100 of wages in 2004–from $1.16 in 2003 to $1.13
Most of this national decline, NASI said, can be attributed to changes in California, where medical benefits dropped by 10 cents per $100 of covered payroll.
Nationally, the costs to employers–primarily the premiums they pay for workers' comp insurance (or the benefits they pay plus administrative costs if they self insure)–rose by 3 cents per $100 of wages, to $1.76 in 2004.
The increase in costs in 2004 was the smallest annual increase since the current cycle of higher costs began in 2001, and Mr. Burton suggests, "This development may signal a period of more modest increases in workers' compensation costs."
Despite the recent rise in costs, NASI said both costs and benefits in 2004 remain far below their peak levels relative to wages. Total benefits peaked in 1992 at $1.68 per $100 of covered wages, which is 55 cents higher than the most recent figure. Costs to employers peaked in 1990 at $2.18 per $100 of wages, which is 42 cents higher than in 2004.
NASI's report, Workers' Compensation: Benefits, Coverage, and Costs, 2004, is the ninth in a series that it said provides "the only comprehensive national data on these largely state-run [comp] programs. The study provides estimates of workers' comp payments–cash and medical–for each state, the District of Columbia, and federal programs providing workers' comp benefits.
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